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sir in lectures you only thaught the normal high low method. and in this it says stepped fixed cost is necessary for the exams. will you be adding this in the notes?. also, I don’t understand the answer they have given can you explain
I will not be adding it to the notes, because this is just one way the examiner can test that you understand what you are doing and that you have not simply learned ‘rules’. If you understand the logic of the high low method then you can cope with any ‘trick’ that the examiner puts in.
If you are referring to the current edition of the BPP Revision Kit, then question 3b.20 is not asking about stepped fixed costs at all. The total fixed cost stays constant and it is the variable cost that drops by $1 per unit for units produced in excess of 15,000 units.
The total cost for 20,000 units is $68,000. If the variable cost had not fallen by $1 per unit for units over 15,000 then the total cost would have been higher by 5,000 x $1 = $5,000 and would therefore have been $73,000.
Using the normal high low method with a total cost of $73,000 gives a variable cost per unit of (73,000 – 39,400) / (20,000 – 8,000) = $2.80 per unit.
Therefore for output above 15,000 units, the variable cost per unit will be 2.80 – 1.00 = $1.80 per unit.
okay sir, yes sir I know the logic variable cost tricked me but later on I was able to figure it out. thanks for the explanation I got it now.
this time I won’t be tricked.
thank you sir for helping me out in this one
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